Property vs Shares over 10 Years

Summarised from SMH

Bricks and mortar might be the popular choice for investors, but how does it stack up in the long term? John Collett discovers which asset classes gave more bang for your buck in the past 10 years.

•          Residential real estate is a much-loved investment and everyone seems to know someone who has doubled their money playing property.
•         Shares have their legions of fans,
•          while others prefer the security of cash.

But to settle the question of where has been best to invest over the long term, Money asked AMP Capital Investors and SuperRatings to supply the 10-year returns for six asset classes, plus superannuation.

The results will disappoint the bricks-and-mortar brigade, because they show Australian shares win hands down. Not only have domestic shares outpaced overseas shares, they have done much better than residential real estate.

1.             Australian shares produced an average annual return of 9.1 per cent over the past 10 years to Dec 31, 2012.

2.            Superannuation and Australian bonds were the next best performers, returning 6.4 per cent.

3.             Bricks and mortar even struggled to keep up with the 5.4 per cent return on cash. Australian residential property produced a return of only 5.3 per cent.

4.             Property price performance is even worse than it seems, because all returns given in the accompanying table (above, right) are ''total'' returns. Estimates of the gross rental yield coming from rents have been added to the growth in house and unit prices. With shares, the dividends are included in the returns so the asset classes are compared like-for-like.

On a growth rate of 5.3% on property, (assume a  marginal tax rate of 39% and a 5% gross rental yield) your post tax IRR is 19.03%
(if you want my detailed workings , please contact me and I will gladly send this to you!

Timing is a factor

But the start and end points used to measure performance are crucial to the outcome. The chief economist at AMP Capital Investors, Shane Oliver, points out that 10 years ago was a low point for shares with the end of the ''tech wreck'', and the start of the strong period of returns that ran until late 2007 with the onset of the global financial crisis (GFC),  and the 9.1 per cent 10-year return on Australian shares has been lifted by shares returning more than 20 per cent in 2012.

Just as the 10-year return on shares starts from a low point, a decade ago growth in property prices was peaking. Oliver says the poor 10-year return on houses and units is influenced by the price boom between the mid-1990s and 2003. But since then, particularly in the key market of Sydney, prices have been treading water, he says.

Advantage of Real Estate -
it is tangible and investors can touch  and feel it, Harder to sell than other assets… which is why it is safer to leverage agaijnst!

 You can buy a $500k investment with $100k deposit and borrow the rest. Just make sure you can afford the possible “negative gearing” – would not do this with shares because of margin calls etc. 

It would be interesting to do a comparison of $100k invested in shares with Divs reinvested and $100k invested in a $500k property with rents offsetting mortgages and taking into account negative gearing tax benefits!!

I will ask my gurus to prepare...

Let me know if you are interested in the comparison!!